(1) Compute the overhead volume variance. Indicate variance as favorable or unfavorable. (2) Compute the overhead controllable variance. Indicate variance as favorable or unfavorable.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Manuel Company predicts it will operate at 80% of its productive capacity. Its
| Flexible Budget at 80% Capacity | Actual Results | |
|---|---|---|
| Production (in units) | 54,750 | 51,600 |
| Overhead | ||
| Variable overhead | $ 301,125 | |
| Fixed overhead | 54,750 | |
| Total overhead | $ 355,875 | $ 367,700 |
1. Compute the standard overhead rate. Hint: Standard allocation base at 80% capacity is 27,375 DLH, computed as 54,750 units × 0.5 DLH per unit.
2. Compute the standard overhead applied.
3. Compute the total overhead variance. (Indicate the effect of the variance by selecting favorable, unfavorable, or no variance.)
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